Staffing agency Kelly Services (KELYA) connects talented people to companies in need of their skills, according to its corporate profile. While offering a generally relevant network for jobseekers, the main headwind facing KELYA stock in the post-pandemic ecosystem has been the surprising resilience of the workforce. Essentially, under a tight labor market, anyone who wants a job can get a job. However, an upcoming pivot might make KELYA powerfully relevant.

The Fed Struggles with a Robust Jobs Market

Following the initial collapse of the equities sector as the COVID-19 crisis capsized the global economy, Kelly Services and the underlying employment staffing industry experienced a gradual recovery. According to the U.S. Bureau of Labor Statistics, the employment level fell to 133.26 million in April 2020, 16% below February 2020’s metric of 158.75 million.

However, with bipartisan action in Washington yielding unprecedented support and stimulus programs aimed at undergirding American households – as opposed to major corporations – many workers took advantage of the circumstance. According to The Associated Press, many of them enjoyed the time and the financial cushion to rethink their careers. Naturally, a dearth of hiring materialized as would-be employees were hesitant to punch the clocks tied to high-stress occupations.

Invariably, though, the increase in the money stock tied to various COVID-related rescued programs sparked massive inflation. To curb accelerating consumer prices, the Federal Reserve began raising the benchmark interest rate. In doing so, policymakers hoped that the associated rise in borrowing costs would cool the red-hot labor market.

Despite some signs of a disinflationary effect, the headline print continued to confound many market observers. And even the June jobs report — which at 209,000 new employment opportunities added came in below economists’ forecast – still demonstrated the U.S. labor force’s resiliency.

However, two factors may end up changing the course of the jobs market and by logical deduction, KELYA stock. First, the unemployment rate declined slightly to 3.6% in June from 3.7% in May. Second, the pace of wage growth remained stable on a month-to-month basis.

Stated differently, more dollars (through a robust labor force) continue to chase after fewer goods (due to increased competition among consumers). To help guide the economy to some semblance of normalcy, the Fed may decide to raise rates again after pausing such hikes in June.

Fundamentally, this narrative could change everything for Kelly Services.

KELYA Stock Could Pivot from Irrelevance to Significance

During a tight labor market — where job openings abound but willing workers are few and far between — staffing firms like Kelly Services suffer disproportionately. As its public profile states, the company specializes in business connections. Of course, there’s no such thing as a free lunch. For making the connection between employers and prospective employees, Kelly gets a cut.

In a slack labor market where job openings are few and available workers are abundant, Kelly could meaningfully cut through the clutter, helping employers focus only on comprehensively qualified candidates while spotlighting truly deserving jobseekers. However, in today’s market environment, staffing agencies represent irrelevant middleman enterprises.

Even worse, it’s not just a blind sentiment but rather a dynamic that imposes a real cost to the employment staffing industry. For example, in Kelly’s first quarter of 2023 earnings report, the company posted revenue of $1.269 billion, down almost 2.2% from the year-ago quarter’s haul of nearly $1.3 billion.

“Taking into account well recognized macroeconomic headwinds, we delivered solid results as our specialty solutions proved more resilient than others,” Kelly President and CEO Peter Quigley stated in part.

Significantly, the aforementioned macroeconomic headwinds remain a concern for KELYA stock. If a pivot from tight to slack does not materialize in the labor force, Kelly shares may suffer a sharp correction.

However, a slack labor force may be on the horizon due to a potential concerted effort to attack inflation. Almost one year ago, Fed Chair Jerome Powell emphasized the necessity of curbing the escalation of consumer prices in order to achieve economic stability. As a matter of principle, Powell likely cannot ignore his own directive.

Assuming that Powell makes good on his overall monetary policy strategy, the rising desperation in the workforce – mostly stemming from the mass layoffs as a consequence of higher borrowing costs – could reinvigorate KELYA stock.

Sensible Opportunity

To be sure, KELYA stock still presents a risky backdrop. Since the start of this year, shares only gained 1.53% of equity value, a hardly confidence-inspiring tally considering that the benchmark S&P 500 index moved up over 15% during the same period. Still, the likely pivot to a slack labor market presents a sensible opportunity.

As well, KELYA stock offers an enticing discount. Currently, shares trade at a trailing-12-month (TTM) sales multiple of 0.13 times. In sharp contrast, the revenue multiple for the underlying business and consumer services sector stands at a much loftier 1.69x.

In fairness, Kelly Services hasn’t done much to earn investors’ trust. However, a good portion of this poor result stems from unfavorable labor market conditions. Should this paradigm shift, KELYA stock would likely intrigue forward-looking contrarians.

This article originally appeared on Fintel

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